Well, we say ‘obvious’ mistakes but we know that taking care of taxes can be a minefield of confusion. Knowing what counts as a deductible expense, keeping your books up-to-date and 100% accurate and determining the status of the people working for you are some of the areas that most frequently trip people up and although the vast majority of tax return errors are innocent, HMRC is unlikely to be sympathetic. An error is an error and even a minor mistake can cost you and your business dearly.
We look at the most obvious tax mistakes — and how to avoid them.
Even if you’re the type that loves bookkeeping and have no problem with keeping on top of your ingoing and outgoing transactions, it’s likely that if you’re not using an accountant, you’re missing a trick.
Accountants offer so much more than balancing your books; advice on allowable tax expenses, long-term tax planning, financial forecasting and HMRC compliance are all part of their remit. A good accountant should be able to save you at least the cost of their fees, so you by hiring a pro you have nothing to lose and lots of great advice to gain.
While a good accountant is worth their weight in gold, they can only work with the data they’re given. So, if you’ve handed over documents with incomplete or false information, and the tax man discovers the discrepancy, ultimately it’s you, the business owner, who will have to claim responsibility — and who’ll take the hit for any fines or penalties.
We don’t think for a minute that you’re actively trying to falsify your financial data but mistakes can happen to even the most fastidious of us. Regardless of whether the error was intentional or a genuine mistake, the process of fixing it with HMRC will be stressful and time-consuming. Add in any potential penalties and it is definitely worth making sure it is correct the first time around.
One way to avoid the stress of potential errors in your record keeping is to invest in accounting software. A decent software package will allow you to import bank statements (Countingup actually offers a business account that is your accounting software, as well as the ability to download CSV exports), automate invoicing and the payment of bills and automatically update your tax records.
Not only does it make life as an SME owner easier but it removes much of the potential for human error that can get you in trouble come tax time.
That laptop that you bought for when you’re working remotely…you can claim for that, right? Even though you use it to stream the occasional movie and do your online food shopping. And that journey to the capital. Sure you had a client meeting that day but then you met up with friends for the evening. Does your train ticket still count as a legit business expense?
Keeping track of what is and isn’t an allowable expense is tricky and even a small mistake on your tax return could result in a penalty and closer scrutiny from HMRC in the future. Again, this is when it pays to consult an accountant.
Employee or freelancer? It doesn’t seem like a difficult question, does it? Yet when it comes to HMRC, the lines can be blurry. If a freelancer uses your equipment, for example, HMRC can argue for employee status. Ditto anyone who has to work for you in a certain location or to a certain time scale, despite their self-proclaimed status as a freelancer.
And if HMRC decides that someone working on your behalf is an employee and not a freelancer, you’re responsible for paying the PAYE that should have been deducted from their ‘wages’. It’s an expensive mistake to make so yet again, get an accountant on board and follow their expert advice.
We totally get it. If you’re not a huge fan of technology and you’re comfortable with how you’re currently managing your finances, it’s oh-so-tempting to bury your head in the sand when it comes to the digital revolution of business finances. Unfortunately, though, it’s time to pop your head back up and face the change — as of next year, when Making Tax Digital (MTD) hits, you’ll have no choice.
The upside is that you still have plenty of time to prepare, as long as you start now; it’s time to ditch your spreadsheet or your shoebox methods of accounting and join us in the cloud. Those who are new to accounting technology will be pleasantly surprised by how intuitive cloud accounting software is.
At Countingup, our software is designed to make everything as easy as possible for our users and it’s all fully MTD-compatible so your tax records will be automatically sent to HMRC when the time comes. You’ll wish you’d made the digital leap sooner.
Going digital is one of the simplest ways to minimise the chances of falling foul of HMRC. To find out how it could work for your business, sign up for a free trial of Countinup today.